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Brandan Hallaq

On October 25, 2018, the Michigan Court of Appeals issued an unpublished opinion in the matter of Concerned Property Owners of Garfield Township, Inc v Charter Township of Garfield, unpublished per curiam opinion of the Court of Appeals, issued October 25, 2018 (Docket No. 342831). The Garfield case involved the interpretation of a zoning ordinance that addressed short-term rentals of residential properties in certain districts. In Garfield, a number of homeowners frequently rented out their homes for short-term intervals, usually for about one week in duration. In September 2013, the Garfield Township Zoning Administrator expressed an opinion that the zoning ordinance then in effect, called “Ordinance 10”, permitted short-term rentals.

A few months later, a new Zoning Administrator for the Township took a different position and expressed her opinion that “one-week rentals are not for residential purposes . . . [and] that short term rentals or other transient uses are prohibited” under Ordinance 10. Beginning in 2014, the Township sent letters to many of these homeowners informing them that short-term renting of their homes was in violation of the township’s zoning ordinance.

In 2015, the township passed a new ordinance called “Ordinance 68”, which replaced Ordinance 10. All of the parties involved in the Garfield case agreed that the new ordinance prohibited short-term rentals. However, the homeowners filed a lawsuit against the Township in September 2017, seeking a court order allowing them to continue using their homes for short-term rentals under a legal doctrine called “prior nonconforming use.” The homeowners essentially asked to be “grandfathered” under the previous ordinance as Michigan law does not allow a municipality to enforce ordinances retroactively.

If a zoning ordinance allows a certain use of a property, any later amendment or replacement to that ordinance that prohibits the activity cannot be enforced against an owner that was lawfully using the property for the newly prohibited purpose before the new ordinance took effect. This is called a “prior nonconforming use.” “A prior nonconforming use is a vested right in the use of particular property that does not conform to zoning restrictions, but is protected because it lawfully existed before the zoning regulation’s effective date.” Lyon Charter Twp v Petty, 317 Mich App 482, 489; 896 NW2d 477 (2016). “To be protected, the nonconforming use must have been legal at one time; a use that violates the zoning ordinances since its inception does not draw such protection.” Id.

THE COURT’S DECISION

The trial court ruled in favor of the Township on the basis that short-term rentals were not permitted under the old ordinance. Since the trial court interpreted Ordinance 10 to prohibit short-term rentals, the homeowners’ argument that they had a prior nonconforming use and should be allowed to continue to rent under the new ordinance was rejected. The trial court issued an order prohibiting the homeowners from renting their homes for short-term intervals. The homeowners filed an appeal.

On appeal, the court’s primary task was the interpretation of the old ordinance. The Court of Appeals relied on the ordinance’s definition of “single-family dwelling” as a “dwelling unit designed for exclusive occupancy by a single family” and the definition of “dwelling unit” as a “building or portion thereof designed exclusively for residential occupancy by one (1) family.” The ordinance also defined “family” to include relationships of a “non-transient domestic character,” but to exclude those “whose domestic relationship [was] of a transitory or seasonable nature or for an anticipated limited duration of a school term or other similar determinable period.”

The Court of Appeals relied on the above definitions in reaching its decision that short-term rentals were prohibited under the old ordinance. Specifically, the Court held “Because short-term rentals are inherently transitory, by limiting the use to ‘family’ dwelling units, Ordinance 10 plainly prohibited short-term rentals. Thus, because appellants’ prior rentals violated Ordinance 10, they do not qualify as a prior nonconforming use.”

The Court of Appeals also based its decision that short-term rentals were prohibited under the old ordinance by its use of the term “residential occupancy.” Although “residential occupancy” was not defined in the ordinance, the Court cited the Michigan Supreme Court case of O’Connor v Resort Custom Builder, Inc, 459 Mich 335, 345-346; 591 NW2d 216 (1999) which excluded uses of a transitory nature from the definition of a “residence.” The O’Connor case defined “residence” as “a place where someone lives, and has a permanent presence, if you will, as a resident, whether they are physically there or not.”

The Court of Appeals relied on this definition in support of its holding that the short-term rentals involved in this case did not establish the type of permanence needed to be considered a single-family dwelling. Therefore, the Court of Appeals ruled that the prior use of the properties by the homeowners under Ordinance 10 was prohibited. The Court of Appeals affirmed the trial court’s decision.

In a Concurring Opinion, Judge Murphy of the Michigan Court of Appeals agreed with this decision but based on a different reason. Judge Murphy relied on the ordinance’s definition of “family” as persons who are “domiciled together . . . in a dwelling unit.” Since Michigan courts have defined “domicile” to mean “the place where a person has his true, fixed, permanent home, and principal establishment, and to which, whenever he is absent, he has the intention of returning”, Judge Murphy reasoned that “A family renting a dwelling for a short period is not domiciled together in the dwelling.”

CONCLUSION

The Garfield case is another in a recent line of cases in Michigan upholding a restriction on short-term rentals. In 2009, the Michigan Supreme Court ruled that short-term rentals of a dwelling for a fee is not considered use of the property as a single-family dwelling. See Laketon Twp v Advanse Inc, 485 Mich 933, 773 NW2d 903 (2009). In 2010, the Michigan Court of Appeals defined a person’s residence as “the place where a person has his home, with no present intention of removing and to which he intends to return after going elsewhere …” and that “use of the property to provide temporary housing to transient guests is a commercial purpose.” See Enchanted Forest Prop Owners Ass’n v Schilling, unpublished per curiam opinion of the Court of Appeals, issued March 11, 2010 (Docket No. 287614), p 7.

More recently in 2017, the Michigan Court of Appeals, in two separate opinions, again upheld restrictions banning short-term rentals. See John H Bauckham Trust v Matthew Petter, unpublished opinion of the Court of Appeals, issued September 19, 2017 (Docket No. 332643); See also Eager v Peasley, 322 Mich App 174, 188–89; 911 NW2d 470, 478 (2017). In Bauckham, the Court held that short-term rentals violated the “residential use” and the “non-commercial use” deed restrictions in a residential subdivision and issued an injunction banning short-term rentals. Id. In Eager, the Court held that “transient, short-term rental usage violates the restrictive covenant requiring ‘private occupancy only’ and ‘private dwelling’.” and “‘Commercial use,’ which is clearly prohibited in the restrictive covenant, includes short-term rentals even without resorting to technical refinement of what constitutes ‘private occupancy’ or ‘private dwelling’.” Id.

Accordingly, Michigan has taken a unique and rather firm stance on restrictions prohibiting short-term rentals. Michigan courts have taken this stance regardless of whether the ban on short-term rentals comes from an ordinance adopted by a municipality or arises from private deed restrictions. In light of the current position taken by Michigan courts, condominium and homeowners associations should not hesitate to take legal action to enforce their governing documents in the event a homeowner is violating restrictions by renting out their home for short-term intervals. Similarly, anyone who wishes to utilize residential property for investment purposes by renting the home on services such as Airbnb, VRBO, and Homeaway should carefully review the zoning ordinances of the municipality where the property is located.

Brandan A. Hallaq is an attorney with Hirzel Law, PLC where he dedicates the majority of his practice to representing condominium and homeowner’s associations. He frequently litigates cases involving contract disputes, shareholder/member disputes, quiet title actions to determine interests in property, enforcement of restrictive covenants, real estate foreclosure actions, and bankruptcy matters representing creditors. He also has experience preparing documents for business and real estate transactions including purchase agreements, franchise agreements, loan/financing documents and commercial and residential leases and mortgages. In 2018, he was recognized as a Rising Star by Super Lawyers, a designation that is given to no more than 2.5% of attorneys in the State of Michigan. Mr. Hallaq obtained his Juris Doctor degree, cum laude, from Wayne State University Law School where he served as an editor on the Wayne Law Review. He can be reached at (248) 478-1800 or at bhallaq@hirzellaw.com.